This is the first paper in the DSGE literature to match key business cycle moments and long-run equity returns in a small open economy with production. These results are achieved by introducing four modifications to a standard real business cycle model: (1) borrowing and lending costs are...

This paper studies long-run trends in the expected return on risky assets and its relationship with the safe rate. We use time-varying return predictability regressions to estimate expected returns on two major risky asset classes – equity and housing – across 17 countries and 145 years. We...

This paper builds an empirical model to connect option-implied cumulants with expected risk premia through latent risk factors. Expected risk premia on individual stocks are estimated by applying a new partial least squares-based method on risk-neutral cumulants at different orders and various...

Although the affine Gaussian term-structure model has been a workhorse model in termstructuremodelling, it remains doubtful whether it is an appropriate model in a low interest rate environment. This paper uses an alternative quadratic Gaussian-term structure model which is well known to be as...

The paper considers a no-arbitrage setting for pricing and relative value analysis of risky sovereign bonds. The typical case of an emerging market country (EM) that has bonds outstanding both in foreign hard currency (Eurobonds) and local soft currency (treasuries) is inspected. The resulting...

This paper studies the predictability of bond risk premia by means of expectations to future business conditions using survey forecasts from the Survey of Professional Forecasters. We show that expected business conditions consistently affect excess bond returns and that the inclusion of...

This paper reviews the predictability evidence of the variance risk premium: (1) it predicts significant positive risk premiums across equity, bond, currency, and credit markets; (2) the predictability peaks at a few month horizons and dies out afterwards; (3) such a short-run predictability is...

Separate literatures study violations of uncovered interest parity using regression-based and portfolio-based methods. We propose a decomposition of these violations into a cross-currency, a between-time-and-currency, and a cross-time component that allows us to analytically relate...